While the crisis has not yet passed, M&A discussions are already increasing. Many firms that were once in a stable position last year are now looking for an exit strategy or need to merge for growth or survival.
In the latest Economic Outlook chapter, economic experts describe a baseline scenario. In the scenario the pandemic fades in the second half of 2020 and containment efforts will slowly loose. Moreover, the global economy could show growth by 5.8 % in 2021 as economic activity normalizes, helped by policy support.
When looking at the latest chart from the IMF Economic Outlook, a high rise in GDP is expected for the countries with advanced economies. With this in mind, companies can incorporate the latest data related to covid-19 into their equation. With coronavirus, the acquired or merged-in firm’s revenue stream may not be as predictable as in the past. The quality of the firm is not the question. Moreover, a firm’s value can drop if the incoming firm’s client revenue shrinks.
What are the remaining challenges in the M&A?
No matter the covid-19, the selling factor remains the same. In M&A challenges, there is an ongoing concern of whether or not the team can bring in sales. Partners do not want to risk payout on a team with no record of selling.
Here’s how to look at the firm value in any CPA M&A deal, pre- or post-pandemic. Value has been, and will always be, what the buyer/acquirer feels it is worth.
Make sure that there is no risk of revenue loss. In that case, the seller or upward-merger firm should not be worried about getting paid in full.
How do you increase the value of your firm? To maximize value, you need to understand the market value of your firm in today’s environment and the drivers that increase or decrease firm value.
Software industry changes in the M&A
In the software industry, private equity-backed providers are helping in subtle ways. They are offering their products and services to government agencies to help them respond to the pandemic or track its spread.
The world of private equity ownership often provides for higher authority over a company’s strategic management. That said, businesses can promptly shift direction to respond to market challenges. Moreover, the technology sector shows that a lot of companies are constantly producing innovative technological solutions.
A recent example of the tech company is digital assistant Andrija, developed in Croatia to help fight against coronavirus. This “virtual doctor”, powered by artificial intelligence, has been developed by Croatian IT companies in cooperation with epidemiologists.
The idea of the assistant is to assist healthcare professionals, doctors and epidemiologists in controlling the development of the Covid-19 epidemic. In addition to that, users are able to determine if they are covid-19 positive.
In short, many software companies are looking for new ways to thrive after the crisis. The post-pandemic situation will bring some economic difficulties for many companies. Meanwhile, tech giant Facebook is already working with health researchers and nonprofits. Facebook will provide anonymized and aggregated statistics about people’s movements. The project is called desease-prevention maps.
Changes in the M&A: Investors still on the hunt
With 170 deals completed in the first three months of 2020, deal volumes are significantly down. If we compare with the previous quarter, deal volumes are the lowest since early 2014.
Moreover, covid-19 crisis has significantly disrupted the normal flow of M&A deals. With the global economy change in mind, companies are more likely to prioritize short-term actions over long-term initiatives. However, those that are able to stay on the course, will more likely establish foundation for continued success once the crisis ends.
Although M&A activity as a whole is expected to be down this year, the deals that get done are expected to involve the same technology disrupters that make attractive targets in scope acquisitions. In the survey, company Baker McKenzie predicted global M&A drop 25% this year, from $2.8 trillion to $2.1 trillion. However, the deals that will get done will involve technology of disrupters. In the repor, data shows that across all sectors, companies will seek to acquire the advanced digital technology.
To sum up, technology sector will continue to receive increase in interest from financial buyers. Moreover, the changes in the M&A will result in fewer acquisitions. In addition to fewer M&A acquisitions, the buyers will take companies in a new directions.
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